2016 (5) TMI 333 - AT - Income Tax

LTCG - Benefit of Indexation denied - period of holding of previous owner were the property devolved on the assessee and certain modes of acquisition as per section 49(1) - whether holding period of the assessee on whom the assets are devolved on the death of assessee s father, the provisions of Sections 48 & 49(i) of the Act allow special mode of transfer in gift and succession? - Held that - The action of the AO that the property was acquired by assessee s father and not inherited as per the provisions of the Act cannot be acted upon were assessee became a rightful owner as per Explanation 1(i)(b) to section 2(42A) of the Act and in the present case, assessee deemed to hold the property as on 1981 and indexed cost of acquisition has to be calculated from 01.04.1981 with the base year as 100. The assessee s father acquired property in 1965-66 along with his brothers and on partition in 1979, he became the absolute owner of entire asset and assessee has complied with the conditions of the previous owner as on 01.04.1981 and rightfully claimed the cost in inflation indexation from the base year i.e. 01.04.1981 and the arguments of the ld.A.R are supported by the decision of Co-ordinate Bench of this Tribunal in the case of ITO Vs. Shri Syed Ali Shirazhi 2014 (10) TMI 888 - ITAT CHENNAI following the decision of Special Bench in the case of Manjula J Shah Vs. DCIT (2009 (10) TMI 646 - ITAT MUMBAI) which has been confirmed by the Hon ble Bombay High Court reported in (2011 (10) TMI 406 - BOMBAY HIGH COURT) wherein held that when the assessee sells his immovable property which is acquired under gift or will, while computing the capital gain the index cost of acquisition has to be computed with reference to the year in which previous owner first held the asset and not the year in which the assessee became the owner of the asset. Therefore, the ratio of this decision is squarely applicable to the facts of the present case of the assessee. Thus we direct the AO to allow the cost inflation indexation to the assessee from 01.04.1981for computation of capital gains. - Decided in favour of assessee

Summary

Issues:
1. Denial of indexation for property devolved on the assessee.
2. Calculation of long term capital gains for properties acquired through inheritance and purchase.

Analysis:
1. The appeal was filed against the order confirming the denial of indexation by the Commissioner of Income Tax. The Assessing Officer calculated long term capital gains based on the property's acquisition year by the previous owner, not allowing indexation from the period of holding by the previous owner. The Assessee argued for indexation from the year 1981, as per certain modes of acquisition under section 49(1) of the Act.

2. The first property, acquired by the father in 1964-65, was devolved on the assessee in 1995-96. The Assessing Officer adopted the Cost Inflation Index of 1995-96, resulting in higher capital gains. The second property in Cuddalore was purchased by the father in 1965 and devolved on the assessee in 1995-96. The AO calculated indexation from 1995-96, affecting the exemption claimed under section 54F. The CIT(A) upheld the AO's decision, stating that the property was purchased, not inherited, and denied indexation from 1981.

3. The Assessee argued that the property devolved through succession, entitling indexation from 1981. The Tribunal agreed, citing provisions of sections 48 & 49(i) of the Act, allowing special modes of transfer like succession. The Tribunal referred to the decision in CIT Vs. Manjula J.Shah, emphasizing indexation from the year the previous owner first held the asset. Relying on the Co-ordinate Bench's decision, the Tribunal directed indexation from 01.04.1981 for computing capital gains.

4. The Tribunal allowed the appeal, emphasizing the Assessee's right to indexation from 1981 based on the property's acquisition year by the previous owner. The decision aligned with legal provisions and previous judicial rulings, ensuring fair computation of capital gains.

Conclusion:
The Tribunal's decision favored the Assessee, directing the Assessing Officer to allow indexation from 01.04.1981 for computing capital gains, in line with legal provisions and relevant judicial precedents.